Category: Minimum Wage

Ten Truths About Minimum Wage

George Noga

Minimum wage is the poster child for the law of unintended consequences.

Ten Truths About Minimum Wage

By: George Noga – June 20, 2021

We have written often about minimum wage, but this is our first post entirely on that topic; it contains much new material and updated statistics. Like most liberal bromides, the minimum wage harms the people it is intended to help. Here are ten truths about the minimum wage and the harm it causes the most vulnerable Americans.

1. The poor need jobs. Most people in poverty don’t work; raising the minimum wage makes it harder for them to find jobs. Those on welfare or unemployment don’t benefit.

2. Median household income $66,000. Those on minimum wage, like spouses and teens living at home, are part of solid middle class households; they are not poor.

3. Median age 24, 60% in school. A majority of minimum wage earners are young students; they are not full time workers trying to support a family.

4. 1% affected, 6 months or less. Nearly all (99%) workers earn above the minimum wage and virtually no heads of households or full time workers are affected. Those who do earn the minimum wage do so for an average of less than six months.

5. Increased cost of living. Child care workers earn $11/hour. A $15 wage would raise the monthly cost to families by $250 and would force many poor people to quit work to care for their children. Raising grocery workers to $15 would hike food costs.

6. The EITC is cut. Any benefit from a higher minimum wage would be substantially negated by a reduced earned income tax credit and is a disincentive to working.

7. Unemployment increased. Whenever the minimum rises, businesses automate and relocate. When the price of anything (labor) goes up, there is less of it.

8. Total wages decrease. Although hourly rates will rise to the new minimum, total earnings will go down due to fewer hours worked. When Seattle raised its minimum wage in 2016 to $13/hour, the earnings of low-wage workers actually declined.

9. Most vulnerable harmed. All the aforementioned problems with minimum wage disproportionately harm uneducated, poor, minority, low-skilled and young workers.

10. Differences between states. There are glaring differences in $15/hour between say Mississippi and New York. Mississippi would experience increased costs of over 40% in child care and other low-wage services; restaurants would all but cease to exist.

The ten truths and statistics listed supra are hard facts, not opinion. Economists of all political persuasions are near-unanimous in opposing raising the minimum wage. Why therefore is a $15 minimum wage an article of faith for progressives?

The answer is the same as for other progressive shibboleths: (1) it is about socialism, not economics; (2) they are virtue signaling; (3) it is all about intentions, not results; (4) it is a sop to labor unions by reducing competition for lower-paying jobs; (5) they know their media sycophants will shill for them; and (6) liberalism is a lie.

Markets determine wages, not governments. Regardless of the law, the real minimum wage always is zero, zilch, nada, niente, scratch, nix, zip, nothing – and that is the wage more and more workers will receive if the minimum is raised to $15 per hour.

Our next post is about inequality of wealth in America.

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More Liberty Less Government – mllg@cfl.rr.com – www.mllg.us

$15 Minimum Wage – Soaking the Rich

George Noga

Taxpayers are not like sheep, docilely waiting to be shorn.

$15 Minimum Wage – Soaking the Rich

By: George Noga – March 14, 2021

With Democrats back in power, we revisit two of their leitmotifs beginning with the minimum wage, which they champion despite opposition from economists of all political persuasions. Markets determine wages, not governments and $15 is vastly different in NY vs. WV. The biggest problems with the minimum wage are:

1. It disproportionately puts the poor, minorities, young and low skilled out of work. It is economic strychnine; whenever the minimum rises, businesses are incentivized to relocate and/or automate. When the price of anything goes up, we get less of it.

2. Fewer than 1% of workers are affected. Of those affected, most earn minimum wage for six months or less. It impacts virtually no heads of households or full time workers. The few workers helped are hugely outnumbered by those who lose their jobs.

3. Most minimum wage workers are not poor. The average household income for someone earning the minimum wage is nearly $60,000. Spouses and teens living at home benefit – like the kid who delivers your pizza to buy gas for his SUV.

4. The poor need jobs, not a higher minimum wage. Most people in poverty don’t work and raising the minimum wage makes it harder for them to get a job. Those receiving unemployment or welfare do not benefit. The real minimum wage always is zero.

5. The earned income tax credit (EITC) is cut. Any benefit from a higher minimum wage is substantially negated by a lower EITC and is a disincentive to working.

Labor unions support minimum wage mostly because it prices the poor and minorities out of the labor market, reducing competition for lower paying jobs. Support also comes from liberal virtue signalers inflating their self esteem. As with other feel-good bromides, it enables soft-headed liberals to flaunt their pristine intentions.

Why it is Impossible to Soak the Rich (except for one way)

Following are the main reasons it is impossible to soak the rich. As a former CPA tax professional, this is a subject about which I have considerable first hand knowledge. Please see our 3/3/19 post on our website (www.mllg.us) for more in-depth analysis.

1. Tax revenue is a constant 18% of GDP (20% in good times, 16% in bad times). This has been valid for the past 75 years and is explained by Hauser’s Law; see infra. Whether tax rates are 92% or 28%, the IRS collects the same 18% of GDP in taxes.

2. Elasticity of taxable income: Analyzing returns before and after tax increases reveals that high income taxpayers paid less at the higher rate than at the earlier lower rate. Moreover, the income of the truly rich is mostly capital gains – not ordinary income.

3. The rich are not the same people. High income taxpayers are mostly different people each year. If someone sells a family business, that taxpayer is “rich” for that one year only. It is impossible to soak the rich if they change from year to year.

4. There is no way to identify the rich. Government has data only for income, a poor surrogate for wealth. You can’t soak the rich if you don’t know who they are.

5. There aren’t enough rich. There are too few to make soaking them worthwhile. You can’t soak them by taxing businesses; they simply pass the cost on as price increases.

6. The rich will take countermeasures: Most of the wealthy got that way for good reasons; i.e. they are bright, resourceful, hard working and definitely not docile. They will adjust (and quickly) to any measures designed to soak them.

Hauser’s Law works because taxpayers are not sheep docilely waiting to be shorn. When rates are raised, they work, save and invest less; barter; retire early; hide, defer and underreport income; convert ordinary to capital gains and defer gains until there are offsetting losses. They employ tax shelters; shift income to lower bracket family members; seek tax free income; shift income to corporations; establish pension plans; exploit ambiguities and loopholes; lobby aggressively for tax breaks; move, even to outside the US; enter the occult economy; use top tax professionals and much more.

There is one (and perhaps only one) way to soak the rich, i.e. with lower tax rates. Hauser’s Law also works in reverse; when rates go down the rich are disincentivized to further lower their taxes. When rates drop, the rich pay a much higher share of taxes than before; it works every time. Progressives won’t do it because they don’t really want to soak the rich; they only want to appear to be soaking the rich.

Next on March 21st, we begin our series: Laboratories of Democracy.

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The $15 Minimum Wage

George Noga
Progressives believe putting poor people out of work is now a moral imperative.
The $15 Minimum Wage
By: George Noga – March 10, 2019

        Jerry Brown said raising the minimum wage “puts a lot of poor people out of work”. He elaborated, “Economically, minimum wages don’t make sense, but morally, socially and politically it makes sense“. This was a rare moment of truth for liberals, who believe creating unemployment among the poor now is a moral imperative.

         The minimum wage has been a liberal leitmotif for 80 years, since its inception in 1938 at $.25 per hour, even though it is antiempirical and thoroughly discredited by economists of all persuasions, who are near unanimous that it is economic poison, harming the people it purports to help. Even children with lemonade stands understand when the price of anything (labor) goes up, there will be demand for less of it.

        As with all progressive causes, there are two groups of supporters. At the core, there always are special interests, in this case labor unions, whose contracts contain automatic differentials over minimum wage. Unions also support it because it prices the poor and minorities out of the labor market, thereby reducing competition for lower paying jobs. The second group are virtue signallers doing it for self esteem. Like all other warm, fuzzy, feel-good bromides, it enables soft hearted and soft headed liberals to retreat into their plastic bubbles and to revel in their pristine intentions.

         Following are but five of the problems with the minimum wage:

1. It is bad economics, disproportionately harming the poor, minorities, young and low skilled by putting them out of work. Every time the minimum wage goes up, hundreds of thousands of jobs are lost. Each increase further incentivizes businesses to relocate and/or to automate. More robots anyone? It leads to greater inequality in America.

2. It involves less than 1% of workers. Most who earn minimum wage do so for six months or less; virtually no heads of household or full time workers are affected.

3. Most minimum wage workers are not poor. The average household income for a family with someone earning the minimum wage is over $50,000; they are spouses and teenagers living at home – like the kid who delivers pizza to buy gas for his BMW.

4. Those in poverty need jobs, not a higher minimum wage. A majority of those in poverty don’t work and raising the minimum wage makes it harder for them to find jobs. Remember: the real minimum wage always is zero, zilch, nada, niente.

5. The earned income tax credit is reduced. By lowering the EITC, the benefit of a higher minimum wage is substantially negated and creates disincentives to work. Moreover, those receiving unemployment and welfare do not benefit in any way.

          In our last post on Hauser’s Law (on our website: www.mllg.us) and this post on minimum wage, we sought to address timely economic issues in an insightful, factual, principled manner not usually found in the media; I hope we succeeded. Please feel free to email us at mllg@cfl.rr.com with any questions or comments; we will try to respond, but please allow some time as we do not frequently check that email.

       Of course, we couldn’t resist taking our usual jabs at progressive politics even though we have many left-leaning readers, who I appreciate and from whom I hear regularly. I would like to believe that this blog prompted some of them to reconsider their positions about raising marginal tax rates and the minimum wage.

Next on March 17th: SunRail, AOC, Covington KY students and incivility.